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Net Neutrality on the Internet: A Two-sided Market Analysis

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Author Info
Nicholas Economides () (Stern School of Business, New York University)
Joacim Tåg () (Swedish School of Economics and Business Administration, FDPE, and HECER)

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Abstract

We discuss the benefits of net neutrality regulation in the context of a two-sided market model in which platforms sell Internet access services to consumers and may set fees to content and applications providers “on the other side” of the Internet. When access is monopolized, we find that generally net neutrality regulation (that imposes zero fees “on the other side” of the market) increases total industry surplus compared to the fully private optimum at which the monopoly platform imposes positive fees on content and applications providers. Similarly, we find that imposing net neutrality in duopoly increases total surplus compared to duopoly competition between platforms that charge positive fees on content providers. We also discuss the incentives of duopolists to collude in setting the fees “on the other side” of the Internet while competing for Internet access customers. Additionally, we discuss how price and non-price discrimination strategies may be used once net neutrality is abolished. Finally, we discuss how the results generalize to other two-sided markets.

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File URL: http://www.stern.nyu.edu/networks/Economides_Tag_Net_Neutrality.pdf
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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 07-45.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 31 pages
Date of creation: Sep 2007
Date of revision: Nov 2007
Handle: RePEc:net:wpaper:0745

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Web page: http://www.NETinst.org/

For technical questions regarding this item, or to correct its listing, contact: (Nicholas Economides).

Related research
Keywords: net neutrality two-sided markets Internet monopoly duopoly regulation discrimination

Other versions of this item:

Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
D4 - Microeconomics - - Market Structure and Pricing
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Christiaan Hogendorn, 2006. "Broadband Internet: Net Neutrality versus Open Access," Working Papers 2006-09, Center for Network Industries and Infrastructure (CNI). [Downloadable!]
    Other versions:
  2. Jean-Charles Rochet Author-Email: rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
    Other versions:
  3. Nicholas Economides, 2007. "Nonbanks in the Payments System: Vertical Integration Issues," Working Papers 07-06, NET Institute, revised Aug 2007. [Downloadable!]
    Other versions:
  4. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    Other versions:
  5. ROCHET, Jean-Charles & TIROLE, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  6. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  7. Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June. [Downloadable!] (restricted)
  8. Jean-Charles Rochet & Jean Tirole, 2003. "An Economic Analysis of the Determination of Interchange Fees in Payment Card Systems," Review of Network Economics, Concept Economics, vol. 2(2), pages 69-79, June. [Downloadable!]
  9. Austan Goolsbee, 2006. "The Value of Broadband and the Deadweight Loss of Taxing New Technology," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 5(1), pages 1505-1505. [Downloadable!] (restricted)
    Other versions:
  10. Jay Pil Choi, 2006. "Tying in Two-Sided Markets with Multi-Homing," Working Papers 06-04, NET Institute, revised Sep 2006. [Downloadable!]
    Other versions:
  11. Julian Wright, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, Concept Economics, vol. 3(1), pages 42-63, March. [Downloadable!]
  12. AMELIO, Andrea & JULLIEN, Bruno, 2007. "Tying and Freebies in Two-Sided Markets," IDEI Working Papers 445, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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